Why Obama’s Anti-Foreclosure Program is Failing

The Home Affordable Modification Program, which modified loans for eligible homeowners facing foreclosure, is not only failing to make things better for those who stand to lose their homes, it’s actually making things worse. Recent news reports have revealed that many homeowners’ mortgages are higher than they would have been had they not entered into the program.

That wouldn’t be a problem if the homeowners didn’t also have less equity. According to the Treasury Department, more than 1 million people are 60 days delinquent on their mortgage, thus eligible for HAMP, yet less than 650,000 homeowners are in the loan modification program.

In 2009, Obama’s $75 billion dollar HAMP plan was set up to keep families in their homes by using a mix of incentives for banks to refinance mortgages, and for homeowners to make reduced payments. Touted as a way to help up to five million homeowners, the plan would refinance home loans, provide $2 billion in rental assistance, and stabilize the housing market. The plan sounded as though it was heaven sent, but instead it’s been hampered with problems that have made it less than effective for many homeowners.

The problems are many, but the three biggest are:

1. The Obama Administration acted as if it thought the HAMP program alone could fix the mortgage crisis when the real issue was jobs.

“The Obama Administration’s attempt to start new programs to rent or make it easier to purchase Fannie Mae homes proves they are missing the point,” says Harold Durant, CEO of Omni Title and Acquisitions, Inc., a commercial and residential acquisition firm headquartered in Orlando. “The Administration has failed to address the root cause of the foreclosure explosion: jobs. When people can’t find work, the amount of their mortgage or interest rate is irrelevant.”

Aside from the stimulus there weren’t any other programs that addressed long-term unemployment. And it is largely these folks who have the hardest time paying their bills and keeping their homes.

2. It put far too much responsibility in the hands of banks.

“The HAMP program had its hugest impact on the finance industry,” says Ali M. Faruk, director of housing policy and research at Housing Opportunities Made Equal, a housing advocacy organization in Richmond, Va. “To keep from having to participate in HAMP, all the mortgage companies created their own versions of HAMP so they could have more flexibility. They then funneled homeowners into their own loan modification programs. The end result was that homeowners got a lot of help because the creation of HAMP by Obama really spurred the mortgage companies to take ownership of the problem.”

It is true that banks have taken more ownership to a certain extent. But their collective responsibility has only extended so far. It hasn’t stopped them from lying to credit reporting agencies about which homeowners have paid their mortgages and which have not. Clearly the HAMP program wasn’t made to tackle that. In fact, there’s a separate ongoing settlement on the table between all 50 states and the major mortgage banks.

3. It didn’t have a strong enough qualification process, and it has not enrolled enough homeowners.

Recently the New York Federal Reserve published a report comparing the federal foreclosure prevention plan to Pennsylvania’s Homeowners’ Emergency Mortgage Assistance Program (HEMAP). Even though the national unemployment rate was similar to Pennsylvania’s (where the rise in housing prices was more acute), the percentage of seriously delinquent mortgages was far lower. Granted, the HEMAP program is 27 years old and nearly 76% of its applicants are rejected.

But the program has tight qualifications because it seeks to provide help to those best able to keep their home (with just the right amount of temporary support). For instance, 80% of HEMAP loan recipients have been able to keep their homes. That’s a far cry from what Obama’s HAMP program has done. 40% of HAMP borrowers were kicked out of the program in its first year. And the remaining borrowers weren’t likely to receive permanent modifications, just temporary ones.

Why doesn’t the Obama Administration just replicate HEMAP on the federal level or induce states to create similar programs nationwide?

On average, foreclosures are taking nearly 100 days longer than they took last year. That may sound good but it isn’t. The best way to help the housing market is for those who have no means to pay the mortgage — whether they be speculators, investors, or regular folks with just too little income — to give the keys back to the bank as quick as possible, thereby allowing a quicker sale and an opportunity for the bank to earn something.

21 Comments so far ↓

He’s stuck with his liberation theology. He clapped and amen-ed to his preacher screaming “God DAMN White America!” for over a dozen years. In spite of a White mother and being raised by humiliated affluent White grandparents, he identifies with his African lineage only. With this world view, experience in community organizing, a Chicago-based fatherless welfare constituency, and a heavy, biased nod from the mainstream media, he got into office.

Wait, the purpose of HAMP is creating home equity? It’s to avoid imminent foreclosure. If HAMP can reduce the monthly payment and get the homeowner listed as current, then, mission accomplished. If that means increasing the balance, so what? If you can afford to ride out the slump you can refinance or sell down the road.

No, the purpose of HAMP isn’t creating home equity but if you were one of the homeowners kicked out of the program and all you had to show for it was a higher mortgage balance, I don’t think that helps you avoid foreclosure.

Instead, if you weren’t a good fit for the program then you should have never been accepted in the first place.

I think this is a poorly written article that does not address why HAMP has not been successful. Here is why I think that:

1. The Obama Administration acted as if it thought the HAMP program alone could fix the mortgage crisis when the real issue was jobs.

- Facts not in evidence. Certainly the Obama administration thought jobs was the key issue, today and in 2009. They simply have not been effective at creating jobs (nor do I think there are any GOP solutions that would have been more effective). If the stimulus had the desired effect and unemployment was at 8% or below, there would be fewer foreclosures. That’s not HAMP’s fault.

2. It put far too much responsibility in the hands of banks.

- This is your first sentence. Then the next couple of paragraphs talk about banks creating their own version of HAMP so as not to be bound by the gov’ts version and by banks malfeasance is dealing with individuals looking for modification. This isn’t a fault of HAMP putting too much responsibility in the hands of banks, although it could be a fault of HAMP not being written with sufficient regulatory powers. It’s also possible that in the political climate at the time (and now) such regulatory teeth were removed in order to get passage from moderate Dems and any GOP needed votes.

3. It didn’t have a strong enough qualification process, and it has not enrolled enough homeowners.

– These two sentences contradict each other. You use the PA HEMAP as an example and note that HEMAP rejects 76% of it’s applicants. If HAMP followed the same guidelines then it goes to follow that they would also reject about 76% (and therefore enroll fewer applicants).

“The best way to help the housing market is for those who have no means to pay the mortgage — whether they be speculators, investors, or regular folks with just too little income — to give the keys back to the bank as quick as possible, thereby allowing a quicker sale and an opportunity for the bank to earn something.”

- Perhaps this statement is true, it is a point that is being debated. Do we clear out all the bad mortgages now and get it over with or try and manage the process. The possible challenge in your approach is what happens to the economy if you dump all of those houses at the same time – do you trigger a double-dip recession or possibly a depression? I read the other day (no source, sorry) that Fannie and Freddie currently had approximately 250,000 homes that were foreclosed upon but not being sold (some with renters, some empty, some with the original owners still in but not paying anything) because they were concerned about this very thing. Now that the Robo-signing issue has been dealt with, expect a new wave of foreclosures to occur, so it’s possible that amount of backlogged foreclosures could go up rapidly.

My point is that this is a complex issue. I don’t have the answers as to why HAMP hasn’t worked (bank’s unwillingness to accept losses is a big one and stubborn jobs market another), but I don’t think you addressed what those issues might be.

(1) When the HAMP program was unveiled the Obama administration said that it would help 3-4 million homeowners modify, refinance mortgages and prevent foreclosures. There really is no way to do that for such a large number of people without a specific jobs plan tied in. The Obama administration has yet to unveil a specific jobs plan, so I think it’s very valid to say that the administration assumed the HAMP program alone would solve the mortgage crisis.

(2) HAMP did put too much responsibility in the hands of banks. First of all, it wasn’t required. It was completely voluntary and allowed banks to cherrypick which homeowners would be accepted and under which circumstances. Naturally banks chose to use their own modifications instead of HAMP because the rules were more in their favor.

(3) Those statements don’t contradict one another. My point is the HAMP program had worse qualifications which led to a higher dropout rate, and it did not seek to enroll enough borrowers as was initially promised. The HEMAP program never sought to enroll those large numbers of people. They had a different goal to assist homeowners who were still working (or had an ability to make consistent payments) and could afford their mortgage with a little assistance.

Sure, you can do either one: clear out mortgages and hope investors come in and revive the housing market, or you can subsidize mortgages and help people get back on their feet. However, the Obama administration is doing neither. That’s the problem. Thanks for the comments.

Already possible, and used by those folks able to pay the current payment but not arrears immediately, but who are so far underwater that the unsecured debt from their combined mortgages is greater than the statutory cap on unsecured debt for Chapter 13 debtors. But Chapter 11 requires the debtor’s attorney to do a lot more work, has a more limited number of bankruptcy attorneys acceptable to the court, and therefore costs more. It would be better to amend the Bankruptcy Act so that mortgages on the homestead won’t disqualify a debtor from a Chapter 13 discharge.

“President Obama should spend the hour it takes reading the state of Nevada’s complaint against Bank of America. It should be right up there with his national security briefing. If, after reading this, he still insists that Eric Holder remain in his job as US Attorney General, having done nothing for three years about these crimes, then Obama is owned by the bankers every bit as much as Congress. ”

I had some of the same problems with your assertions as think4yourself, and your follow up didn’t help:

“(1) When the HAMP program was unveiled the Obama administration said that it would help 3-4 million homeowners modify, refinance mortgages and prevent foreclosures. There really is no way to do that for such a large number of people without a specific jobs plan tied in”

Are you saying that the HAMP program won’t help those without jobs? If yes, then how many applicants for HAMP are kicked because of lack of a job of one of the applicants? Please cite credible, measurable stats.

Once you have decided a loan modification is right for you, the next step is to decide what type of change you would like to take place on your mortgage and what options are available to you through the MHA Program. http://bit.ly/r6Cp8o

I think one positive result of the President’s policies regarding the mortgage mess is the can has been kicked down the road some ways. And in this case, that is probably a good thing. Eat away at the problem slowly, and try to prevent a sudden glut of property entering the market.